ASEAN Banking Integration Needs Further Discussion

 
Fathan Qorib, Christina Desy
 
As a concrete measure to realize financial integration within the ASEAN region, the central banks governors of ASEAN countries have organized a number of rounds of discussions to establish the ASEAN Banking Integration Framework (“ABIF”). The ABIF aims to act as the main guidelines for the banking industry within the ASEAN region that also sets out  the criteria for qualified ASEAN banks.
 
To date, all ASEAN members, except Indonesia, have agreed on the provisions under the ABIF. Indonesia’s reluctance is due to the fact that the ABIF does not incorporate the reciprocal principle as part of its framework. Agus DW Martowardojo, Governor of Bank Indonesia, stated that Indonesia’s approval will only be given if the ABIF recognizes and regulates the reciprocal principle under its provisions.
 
Indonesia’s stance stems from its experience with foreign banks that can easily carry business in Indonesia, but not vice versa. In one example, a certain ASEAN country has opened three to four thousand branches in Indonesia, but Indonesian banks struggle to open their branches overseas.
 
“If there is no guarantee that Indonesian banks will be reciprocally treated and well respected well, we might not support the ABIF as well,” said Mr. Martowardojo asserting BI’s stance, in Jakarta on Monday.
 
Mr. Martowardojo’s expectation is that each ASEAN member country will improve their regulations by including and implementing the reciprocal principle, that given the 2015 deadline is an issue that must be settled before the end of this year.
 
Maruarar Sirait, member of Commission XI of the House of Representatives, is supportive of BI’s strong stance in striving for the interests of Indonesian banks. Reciprocity is seen as essential for Indonesian banks to expand their business in foreign countries.
 
Mr. Sirait’s views are shared by Harry Azhar Aziz, Deputy Chairman of Commission XI. Mr. Aziz indicated that the DPR intends to embrace the reciprocal principle under the Draft Bill on Banking. Pursuant to Article 5 of the Draft Bill, Indonesian banks will create a healthy and efficient banking system, while also participating in efforts to strengthen the financial system to achieve sustainable economic growth and improve public welfare.
 
In order to realize these objectives, BI and the Financial Services Authority (OJK) must adopt the reciprocal principle for their international banking affairs, for which BI and OJK are the authorized regulators. This is provided for under Article 6 of the Banking Draft Bill.
 
As a stakeholder, the OJK is also of the view that the reciprocal principal should be applied. Muliaman D. Hadad, Chairman of OJK’s Board of Commissioners, stated that the OJK is open to bilateral agreements with authorities from foreign countries to implement the reciprocal principle.
 
The OJK has already entered into bilateral memorandum of understanding (MoU).  Currently, there is an MoU with the Japan Financial Services Agency, under which both countries open their market to each other. Additionally, a similar bilateral cooperation with the China Banking Regulatory Commission (CBRC) is being progressed.
 
Mr. Hadad also addressed another concern regarding reciprocity. In line with the focus on strengthening  the domestic financial industry, Indonesian banks must prepare and equip themselves to compete once foreign markets become available to them.   
 
(hot/kc)